[1]This post was co-authored by Leah Moushey, a Law Clerk at Miller & Chevalier.
The 2016 Latin America Corruption Survey [2], released by Miller & Chevalier and 13 partner law firms throughout the region, shows a notable increase in efforts by companies to mitigate risks that their third parties will pay bribes on their behalf. The survey results are based on information provided by more than 630 respondents across 19 countries in the Americas.
In general, the survey shows that many types of anti-corruption compliance efforts employed by companies in the region have remained consistent over the last four years, since the survey was last conducted in 2012 [3]. For example, 82% of respondents say that their companies have anti-corruption policies, compared to 81% in 2012. 71% say that they have procedures for gifts, travel and entertainment for officials, compared to 70% in 2012. 59% say they have policies for charitable and community donations, and 46% say they have policies for political contributions, compared to 63% and 51%, respectively, in 2012. 51% say they have anonymous reporting mechanisms, compared to 53% in 2012, and 48% say they have full-time compliance personnel, compared to 44% in 2012.
But when data is considered related to compliance practices relevant to managing indirect bribery risks arising from companies’ relationships with third parties, the results are different. Respondents indicating that their companies perform third-party due diligence increased by approximately eight percent since the 2012 Survey (51% in 2012; 59% in 2016). This increase was particularly pronounced among private companies (39% in 2012; 52% in 2016) and local/regional companies (32% in 2012; 49% in 2016) with a more measured increase for publicly-traded companies (65% in 2012; 72% in 2016) and multinationals companies (60% in 2012; to 66% in 2016).
In addition, the use of anti-corruption contract terms increased by seven percent (59% in 2012; 66% in 2016). The inclusion of contractual compliance commitments is a basic component of managing indirect bribery risks. Examples of contractual clauses that may help companies to manage such risks include clauses prohibiting intermediaries from subcontracting to subagents without the company’s express consent, provisions granting the company audit rights over the intermediary’s activities and termination clauses allowing the company to extricate itself if there are indicators of intermediary misconduct.
Relatedly, 34% of respondents indicate that their company’s management has taken steps to monitor the activities of third parties. The 2012 Survey did not inquire about this activity, and it is thus unclear whether the number of companies that are engaging in third-party monitoring has increased, decreased, or remained the same.
These findings are particularly relevant given that indirect bribepayments present one of the highest FCPA risks for companies overall. In 2013, U.S. enforcement officials announced that 70% of all FCPA actions in the prior two years involved third-party payments. In Latin America, third parties have played a role in more than 75% of the FCPA cases covering payments in Argentina, nearly 60% of the cases covering payments in Brazil, and more than 65% of cases covering payments in Mexico. According to the OECD’s 2014 Foreign Bribery Report [4], of the 427 foreign bribery cases analyzed globally since 1999, three out of four cases involved intermediaries.
One area where the 2016 Survey revealed a slight decrease in efforts related to third-party risk management is M&A due diligence. According to respondents, in 2016, 42% of companies conducted M&A due diligence compared to 51% in 2012. It is unclear if this reduction is due to the fact that fewer companies are choosing to manage pre-acquisition risks or if there is less overall M&A activity in the region today.
FCPAméricas has published extensively [5] on FCPA risk related to third parties.
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© 2016 FCPAméricas, LLC